Clashes between intellectual property laws and antitrust laws are causing a headache for rights owners

Intellectual property (IP) and antitrust laws seem to be two areas of law that are in conflict. In IP rights, if we talk specifically about patents, then, on one hand, it gives monopoly rights to the innovators in lieu of disclosure of their inventions and on the other hand, antitrust laws ensure that there should be free and fair competition in the market. Patent laws safeguard the monopoly of the innovator while antitrust laws prevent the misuse of the dominant position by one player in the market.

Avi Garg Head – Domestic Patents, Rahul Chaudhry & Partners Tel: +91 124 4036 821 Email: avi.garg@rahulchaudhry.com
Avi Garg
Head – Domestic Patents
Rahul Chaudhry & Partners
Tel: +91 124 4036 821
Email: avi.garg@rahulchaudhry.com

Prima facie it looks like the two areas of law overlap each other. But it will be fair to say that the two kinds of law are complementary to each other as the aim of both is to encourage innovation, commercialization and competition in the market. Antitrust law in India is governed by the Competition Act, 2002, which replaced the erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act).

The Competition Act was enacted upon the recommendations of the Raghavan Committee. While emphasizing the need for a new law, it was mentioned by the Raghavan Committee that “the present extant law in India, namely the MRTP Act, lacks provisions to deal with anti-competition practices that may accompany the operation and implementation of the WTO [World Trade Organization] agreements. Many of the anti-competition practices will have to be spelled out instead of having to rely on section 2(o) of the MRTP Act, which merely speaks of prevention, distortion, or restriction of competition in a very broad general sense. Specific provisions may be necessary to deal with identifiable anti-competition practices that may accompany international trade in the WTO regime.”

Thus, on the recommendation of the Raghavan Committee report, the Competition Act was promulgated to eliminate practices having an adverse effect on competition, and to promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried out by other participants in markets in India.

Section 3 of the Competition Act states that an agreement that causes or is likely to cause an appreciable adverse effect on competition within India is void. However, subsection (5) of section 3 provides an exception that this provision will not restrain the rights conferred on any person under the various IP laws in India. Section 4 of the Competition Act provides that no enterprise or group shall abuse its dominant position. However, section 4 does not provide any exception for the IP rights as provided in section 3.

The enforcement of IP rights is always contentious when it concerns the jurisdiction of the Competition Commission of India (CCI). Delhi High Court while dealing with the matter of Telefonaktiebolaget LM Ericsson v Competition Commission of India and Anr, held that the jurisdiction of the CCI to entertain complaints about abuse of dominance in respect of patent rights cannot be nullified.

While referring to the matter for investigation by the Director General under section 19 of the Competition Act in InPhase Power Technologies Private Limited v ABB India Limited, where a patent infringement suit was pending, the CCI referring to Delhi High Court’s decision in the Ericsson matter, held that “the alleged intellectual property right dispute between the parties will not take away the jurisdiction of the commission in so far as examining the alleged abuse of dominance by the opposite party”.

As a general principle, standard essential patents (SEPs) should be available on a fair, reasonable, and non-discriminatory (FRAND) licencing terms. The jurisprudence for the availability of SEPs on FRAND licencing terms is at a nascent stage in India. Thus, what would constitute FRAND terms is still a contentious issue and one which has seen aggrieved parties approach the CCI. The licencing terms of SEPs and the position of the patentee of SEPs were discussed in various cases related to telecommunication technologies, where Ericsson has a patent on 2G, 3G and 4G technologies.

Micromax Informatics approached the CCI alleging that Ericsson had abused its alleged dominant position by imposing an arbitrary rate of royalties for the use of SEPs. In this matter, Micromax claimed that the royalty rates should be based on the price of the Global System for Mobile Communications (GSM) or the Code Division Multiple Access (CDMA) chip, whereas Ericsson fixed the royalty rates on the price of the final downstream product. The CCI concluded that royalty rates had no linkage to the product and the rates were discriminatory as well as contrary to FRAND terms.

The CCI had to deal with similar issues when Intex Technologies approached the CCI against Ericsson. The facts of the matter were similar to those of the Micromax dispute. The CCI in this matter held that charging different licensing fees for the use of the same technology from different users was against FRAND terms. Prima facie it was considered by the CCI that Ericsson had abused its dominant position and thus ordered a combined investigation against Ericsson based on the claims made by Micromax and Intex. Similarly, Best IT World, which operates as iBall, had also approached the CCI alleging that Ericsson by its conduct violated section 4 of the Competition Act. CCI in this matter held that the practice of forcing a party to execute a non-disclosure agreement and imposing excessive and unfair royalty rates amounts to an abuse of dominance in violation of section 4 of the Competition Act.

Aggrieved by the decisions and investigation order passed by the CCI, Ericsson approached Delhi High Court by filing an appeal against the CCI’s order. Ericsson also brought patent infringement suits against Micromax, Intex and Xiaomi. While commenting on the availability of SEPs on FRAND terms, it was held by Delhi High Court that the net sale price of the downstream device should be used as the base in calculating the amount of royalty. Thus, there was a contradiction in the approach followed by the CCI and Delhi High Court.

Delhi High Court had also issued an interim stay on the investigation orders passed by the CCI. It was the contention of Ericsson that the Patents Act, 1970, has sufficient provisions to look into the dispute related to the licence agreement, and the CCI had no jurisdiction to order an investigation in this matter. While vacating the interim stay orders, Delhi High Court held that remedies as provided under section 27 of the Competition Act for abuse of dominant position, were materially different from the remedy available under section 84 of the Patents Act. Thus the remedies under the two enactments were not mutually exclusive, in other words, grant of one is not destructive to the other.

Analogous issues were discussed in the matter of Mahyco Monsanto Biotech (India) Limited where the CCI had ordered an investigation against Monsanto for alleged abuse of its dominant position by charging one-sided, arbitrary and onerous royalties on the patent related to traits of Bt cotton. Monsanto approached Delhi High Court by filing a suit for patent infringement against Nuziveedu Seeds and others. However, a single judge of Delhi High Court refused to grant an interim injunction to Monsanto due to its abrupt termination of the licence. The matter was then appealed before the division bench, which in an exceptional judgment revoked the patent even though the trial court had not discussed the validity of the patent.

The conflicting positions of the CCI also came up before the court in the matter of Koninklijke Philips Electronics NV v Rajesh Bansal and Ors. The plaintiff challenged the claim of the defendants in the suit that the manner of fixation of royalty/licence fee by the plaintiff and other big players was anti-competitive. It also contended that the issue could not be decided in the suit as this was barred by section 61 of the Competition Act, which specifically provides that no civil court should have jurisdiction to entertain any suit or proceeding in respect to any matter that is within the domain of the CCI or the appellate tribunal.

While concurring with the plaintiff’s arguments, Delhi High Court in its decision dated 12 July 2018, relied on the decision in the Ericsson matter where it was held that merely because a set of facts pleaded in a suit may also be relevant for determining whether section 4 of the Competition Act had been violated, does not mean that a civil court would be adjudicating that issue. Abuse of a dominant position under section 4 of the Competition Act is not a cause that can be made a subject matter of a suit or proceedings before a civil court.

Upon study of various decisions, it can be concluded that initially there seems to be a conflict between the CCI and the courts in dealing with the Ericsson matters. However, the contours of the CCI, civil courts and the Indian Patent Office are starting to be defined by some well-reasoned judgments of the high courts. The interactions between the antitrust law and IP law is still at an early stage, and it is expected that there will be a harmonious coexistence of these laws in the future.

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